ExpertEasy2 marksMultiple Choice
ACCA · Question 10 · Decision-making techniques
Section A
EventPro is organizing an outdoor music festival. The profit depends heavily on the weather.
Profits:
Good weather (Probability 0.4): $100,000
Average weather (Probability 0.5): $40,000
Poor weather (Probability 0.1): -$20,000 (Loss)
What is the Expected Value (EV) of the profit for the festival?
Section A
EventPro is organizing an outdoor music festival. The profit depends heavily on the weather.
Profits:
Good weather (Probability 0.4): $100,000
Average weather (Probability 0.5): $40,000
Poor weather (Probability 0.1): -$20,000 (Loss)
What is the Expected Value (EV) of the profit for the festival?
Answer options:
A.
$40,000
B.
$58,000
C.
$60,000
D.
$120,000
How to approach this question
Multiply each outcome by its probability and sum the results. Remember to subtract the loss.
Full Answer
B.$58,000✓ Correct
Expected Value = (Outcome 1 * Prob 1) + (Outcome 2 * Prob 2) + (Outcome 3 * Prob 3)
EV = ($100,000 * 0.4) + ($40,000 * 0.5) + (-$20,000 * 0.1)
EV = $40,000 + $20,000 - $2,000 = $58,000.
Common mistakes
Adding the $2,000 instead of subtracting it because it is a loss.
Practice the full ACCA PM — Performance Management Practice Exam 3
32 questions · hints · full answers · grading
More questions from this exam
Q1Section A
LogiChain is a global logistics firm that has recently migrated its entire fleet track...EasyQ2Section A
RetailX, a fast-fashion retailer, is implementing a Big Data analytics system to analy...MediumQ3Section A
EduTech Solutions is developing a new online certification course. The market research...MediumQ4Section A
BioGen is a pharmaceutical company that spends heavily on research and development (R&...EasyQ5Section A
Artisan Bakes produces a specialty sourdough bread. The bottleneck resource is the fer...Medium